Summary:
The sudden COVID-19 outbreak greatly impacted the global economy, and China continues to issue a series of policies and measures to deal with the negative effects of the pandemic. Policy continuity changes not only affect the local country but also spill over to other countries through trade and financial channels. In other words, beggar-thy-neighbor policies can offset each other. Existing studies show that policy adjustments by developed economies have strong cross-country spillover effects; by contrast, China's spillover effects are relatively limited. However, in the turbulent international situation, extreme shocks will promote the continuous adjustment of the roles of countries and reshape their influence. Existing studies use the spillover index based on the vector auto-regression or time varying parameter vector auto-regression model, which generalize the relationships that prevail at the conditional mean to the entire conditional distribution, such that it cannot adapt to different shock sizes and directions. Therefore, under the QVAR model framework, this study uses a conditional quantile-based spillover index to study the cross-country spillover effects of policy continuity under different shock sizes for both positive and negative shocks. The study focuses on spillover changes in the extreme states of policy continuity as compared with the intermediate state and further investigates the asymmetric spillover effects between extreme rising and declining states. In addition, to explore China's international influence in extreme states, a relative spillover index is constructed to study the heterogeneous effects of extreme shocks on directional spillovers across countries. The findings are as follows. First, both the total spillover level of policy continuity and the spillover-in level of each country show a U-shaped structure at various quantiles, highlighting the significant positive effects of shock size. Second, compared with that in the intermediate state, in the extreme states, the total spillover and the directional spillover levels of most countries increase significantly. Moreover, the two extreme rising and declining states have asymmetric spillover effects, i.e., the total spillover shows a greater increase in the extreme declining state, and the spillover-out shows a stronger asymmetry than the spillover-in in the two extreme states. Third, the effects of extreme shocks are heterogeneous across countries, and China's directional spillover level, especially the left-tail spillover to developed countries, has risen sharply. Thus, China's international influence has increased significantly in the extreme states. Therefore, the traditional spillover index may be unable to accurately describe the cross-country spillover characteristics of different states of policy continuity. A conditional quantile-based spillover index should thus be used to comprehensively understand the policy continuity network and the roles of the countries involved. Our study has the following implications. First, related departments should not only strive to ensure the continuity, consistency, and sustainability of macro policies but also exploit the strength of policy coordination with other countries to maintain multilateral cooperation. Second, regulatory authorities should refine the early warning mechanisms related to the policy continuity shock size and direction, formulate clear and specific control schemes for different situations, and focus on preventing the adverse risks associated with increased spillover effects in the extreme states. Finally, to ensure stable economic development, China should accelerate the development of dual circulation, fully tap into the potential of domestic demand to create a strong domestic market, and effectively resolve the negative spillover effects caused by the adjustment of other countries' policies. More importantly, information sharing and implementation cooperation should be enhanced in extreme states, and the common development of all countries should be promoted to ensure high-level opening policies. Our study has the following strengths. First, the latest proposed conditional quantile-based spillover index is used to explore the impact of shock size and direction on cross-country spillovers of policy continuity. Second, using the 0.95th and 0.05th percentiles to represent the extreme rising and declining states of policy continuity, respectively, we examine the spillover changes and asymmetric spillover effects in the extreme rising and declining states. Third, we construct a relative spillover index to test whether the traditional spillover index accurately captures China's directional spillover level under extreme shocks, thereby revealing China's international influence in the extreme states and providing empirical support for the construction of a new dual circulation development pattern.
李政, 石晴, 卜林. 基于分位数关联的政策连续性跨国溢出研究[J]. 金融研究, 2022, 506(8): 94-112.
LI Zheng, SHI Qing, BU Lin. Quantile Connectedness of Policy Continuity across the Globe. Journal of Financial Research, 2022, 506(8): 94-112.
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